Wednesday, September 5, 2007

Making Ethanol from Wheat is Stupid

Follow-on to the post below:

...Stenham Asset Management's chief investment officer Kevin Arenson said a number of factors had combined to pump wheat prices higher, including changing weather patterns, the industrialisation of Asia, changing demand patterns, and substitution issues created by the biofuels revolution.

"I think the world has an inflation problem looking ahead on basic foods," said. "You are now starting to see manufacturers of cereals, for example, talking about input prices going up." Last month the International Grains Council cut its forecast for world wheat output in 2007/08 by 7 million tonnes to 607 million, citing deteriorating crop prospects in the European Union and Canada....Reuters

The European Commission Thursday cleared global energy giant BP and U.K.-based food and retail group Associated British Foods (ABF.LN) to build a biofuel production plant in the U.K. The joint venture involves a total investment of around 200 million British pounds, writes Dow Jones Newswires reporter Anne Jolis. The biofuel plant will be built on BP’s existing chemicals site at Saltend, Hull, U.K. and is expected to be commissioned in 2009, BP said. The plant will convert wheat feedstock into ethanol, and will have an annual production capacity of some 420 million liters.

Last May it was two of the most politically connected investors in the world, Carlyle Group* and Riverstone Holdings** building a wheat-to-ethanol plant in the same area, Teesside, that the poster boy of political connections, Enron, built their giant co-gen plant:

The UK biofuels industry is to invest £250m in a new ethanol production plant on Teesside.

Ensus, the concern building the facility, has secured the funds from private equity groups the Carlyle Group and Riverstone Holdings. There is also £150m of debt finance.

Building work is to commence this spring at the Wilton International site near Middlesbrough and full production should reach 400 million litres a year in 2009.

The UK will introduce a requirement for five per cent bio-sourced content in all transport fuel from 2010, guaranteeing a need for at least a billion litres of ethanol annually. It will also mandate a 2.5 per cent biofuel requirement to commence in 2008, which is projected to reduce overall carbon emissions by 500,000 tonnes per year.

So far, Ensus will have few on-shore rivals for this market, although British Sugar is to open a smaller 70 million litre plant.

The Ensus facility is to produce its ethanol from wheat, traditionally in surplus across the European Union. The idea is that the wheat has absorbed carbon from the atmosphere as it grows, so using it in place of fossil fuels will reduce environmental damage.

However, biofuels have occasionally run into controversy. It has been suggested that a big takeup might drive up the price of food and require excessive use of land. Some critics have also pointed out that producing ethanol requires substantial amounts of power, which at the moment is largely generated by burning fossil fuels.

Biofuel advocates have countered with the suggestion that in future the production plants and associated transport could also burn ethanol. In this scenario, fields of crops would effectively function as immense self-built solar-power generators, storing the sun's energy in portable ethanol form without any carbon footprint whatsoever.

Whether there is enough land and biomass available in the world to power the human race's transport needs and feed it too is open to question....More from the

...This of course, is nothing to what we will see if the EU goes ahead with its ten percent target for biofuels. If it does go ahead with this madness, inflationary pressures will not only intensify, we will face the real prospect of a shortage of basic foods.

The one good thing, though is then, perhaps people might wake up to the dangers presented by "green politics" and our continued membership of the EU. It would be worth going a little hungry for that.

*Here's Melanie Warner's 2002 Fortune story on the Carlyle Croup:

The Big Guys Work For The Carlyle Group

Are you the sort of person who believes in conspiracies--the Trilateral Commission secretly runs the world, that sort of thing? Well, then, here's a company for you. The Carlyle Group, a Washington, D.C., buyout firm, is one of the nation's largest defense contractors. It has billions of dollars at its disposal and employs a few important people. Maybe you've heard of them: former Secretary of State Jim Baker, former Secretary of Defense Frank Carlucci, and former White House budget director Dick Darman. Wait, we're just getting warmed up. William Kennard, who recently headed the FCC, and Arthur Levitt, who just left the SEC, also work for Carlyle. As do former British Prime Minister John Major and former Philippines President Fidel Ramos. Let's see, are we forgetting anyone? Oh, right, former President George Herbert Walker Bush is on the payroll too.

The firm also has about a dozen investors from Saudi Arabia, including, until recently, the bin Laden family. Yes, those bin Ladens. Is it any wonder that Internet sites with names like paranoiamagazine.com are rife with stories about Carlyle's shadowy, corrupt global network? And it's not just wackos. "Be careful," a tech entrepreneur in Silicon Valley wrote in an e-mail when he learned I was doing a story on Carlyle. "The rabbit hole runs really deep on this one.''MORE

**If you missed it, Riverstone hired John Browne, former head of BP and crony of Ken Lay:Riverstone enlists Browne to hunt for cheap assets.

...The former chief executive of BP will spearhead the European expansion of Riverstone, the New York-based private equity group. Although private equity groups will find it more difficult to pull off deals at high multiples of earnings with large amounts of debt, there are still investment opportunities for those prepared to borrow less and inject more equity.

Riverstone is focused on the energy and power sectors and Browne, who has joined as managing partner of Riverstone Europe, is expected to use his considerable contacts book in the industry to identify targets....More from the Telegraph

Faced by the prospect of his impending death, Boris, the character played by Woody Allen in his film Love and Death, finds his mind returning, time and again, to the harvest: “The crops, the grains. Fields of rippling wheat,” he says. “Oh, wheat! Lots of wheat! Fields of Wheat . . . Wheat. All there is in life is wheat.” From today's Times of London story, "Warning Bells as the cost of bread rises"